[Federal Register Volume 63, Number 129 (Tuesday, July 7, 1998)] [Notices] [Pages 36725-36726] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 98-17834] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40138; File No. SR-NYSE-98-02] Self-Regulatory Organizations; Order Approving Proposed Rule Change by the New York Stock Exchange, Inc. to Include Rules 392, 460.30, 80A(b), 79A.15 and 105 in its Minor Disciplinary Fine System under Exchange Rule 476A June 26, 1998. I. Introduction On January 20, 1998, the New York Stock Exchange, Incorporated (``NYSE'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ a proposed rule change amending its ``List of Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A'' and its reporting plan for 476A violations to include the items proposed for addition to the list of rules subject to Rule 476A. The proposed rule change was published for comment in Securities Exchange Act Release No. 39980 (May 8, 1998), 63 FR 27339 (May 18, 1998). No comments were received on the proposal. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). --------------------------------------------------------------------------- II. Description of the Proposal On March 11, 1985, the Commission approved a NYSE plan for the abbreviated reporting of minor rule violations. The NYSE Minor Rule Violation Plan (``MRVP''), as embodied in NYSE Rule 476A, provides that the Exchange may designate violations of certain rules as minor rule violations. The Exchange may impose a fine, not to exceed $5000, on any member or member organization for a violation of the delineated rules by issuing a citation with a specific penalty.\2\ The Exchange [[Page 36726]] also retains the option of bringing violations of rules subject to NYSE Rule 476A to full disciplinary proceedings. The Exchange proposed that the failure to comply with the provisions of (1) Rule 392 and Rule 460.30 which require notification to the Exchange by member organizations when they are participating in or engaging in certain activities related to an offering of securities listed on the Exchange; (2) Rule 80A(b) which prohibits entry of stop orders for the remainder of any trading day on which ``sidecar'' procedures have been invoked; (3) Rule 79A.15 which requires specialists to publish bids and offers upon receipt of limit orders; and (4) Rule 105 and its Guidelines regarding specialists' speciality stock options transactions and the reporting of such transactions be included in the rule. The Exchange proposed the additions to broaden the regulatory responses available to the Exchange in effectively inducing compliance with all aspects of the rules. --------------------------------------------------------------------------- \2\ The list of delineated rules is contained in Supplementary Material to NYSE Rule 476A. Only those fines that are not in excess of $2,500 are subject to the periodic reporting requirements of SEC Rule 19d-1(c). --------------------------------------------------------------------------- III. Discussion The Commission believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, with Section 6(b)(5) which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments and to perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.\3\ --------------------------------------------------------------------------- \3\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange's proposal is also consistent with the requirements in Sections 6(b)(1) \4\ and 6(b)(6) \5\ requiring that the rules of an exchange enforce compliance and provide appropriate discipline for violations of Commission and Exchange rules. Moreover, because NYSE Rule 476A provides procedural rights to the person fined and permits a disciplined person to request a full hearing on the matter, the proposal provides a fair procedure for the disciplining of members and persons associated with members, consistent with Sections 6(b)(7) \6\ and 6(d)(1) \7\ of the Act. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b)(1). \5\ 15 U.S.C. 78f(b)(6). \6\ 15 U.S.C. 78f(b)(7). \7\ 15 U.S.C. 78f(d)(1). --------------------------------------------------------------------------- The Commission believes that the Exchange's proposal, adding five additional rules to those subject to the imposition of fines under Rule 476A reinforces the obligations of exchange specialists. Most notably, by adding NYSE Rule 79A.15 to the MRVP, the Commission believes that the Exchange is emphasizing the importance of the obligation of an exchange specialist to immediately display certain customer limit orders in accordance with the Commission's Limit Order Display Rule \8\ and NYSE Rule 79A.15. The Commission believes that displaying customer limit orders benefits investors by providing enhanced execution opportunities and improved transparency.\9\ --------------------------------------------------------------------------- \8\ 17 CFR 240.11Ac1-4. \9\ See Securities Exchange Act Release 37619A (September 6, 1996), 61 FR 48290 (September 12, 1996)(``Adopting Release''). --------------------------------------------------------------------------- The Commission expects that the Exchange has the appropriate surveillance procedures to easily identify a specialist who fails to display a customer limit order immediately or is relying on an automated system that does not display limit orders immediately.\10\ The Commission, therefore, believes that because certain violations of the Limit Order Rule are amenable to efficient and equitable enforcement they are appropriate for inclusion in NYSE Rule 476A. The Commission expects, however, because a violation of NYSE Rule 79A.15 amounts to a violation of a federal securities law, that the Exchange will err on the side of caution in disposing of such violations under the Plan.\11\ The Commission expects the Exchange to continue to resolve more serious violations of rules through the use of formal disciplinary procedures, as in the case of an egregious violation or habitual offender. --------------------------------------------------------------------------- \10\ A specialist is not displaying customer limit orders immediately if the specialist regularly executes customer limit orders at, for example, the 27th second after receipt. As stated in the Adopting Release, the requirement that a limit order be displayed ``immediately'' means that the limit order must be displayed as soon as practicable, but no later than 30 seconds after receipt under normal market conditions. This 30 seconds is an outer limit under normal market conditions and is not to be interpreted as a 30-second safe harbor. \11\ For example, the Commission expects that the Exchange would not issue several cautionary letters before instituting the fines under the Plan or aggregate multiple violations of the rules before instituting abbreviated disciplinary procedures under the Plan or, if necessary, full disciplinary procedures. --------------------------------------------------------------------------- IV. Conclusion For the foregoing reasons, the Commission believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, with Sections 6(b)(1), 6(b)(5), 6(b)(6), 6(b)(7), 6(d)(1) and 19(d) of the Act. It is therefore ordered, pursuant to Section 19(b)(2) of the Act \12\ and Rule 19d-1(c)(2) thereunder,\13\ that the proposed rule change (SR-NYSE-98-02) be, and hereby is, approved. \12\ 15 U.S.C. 78s(b)(2). \13\ 17 CFR 240.19d-1(c)(2). --------------------------------------------------------------------------- For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(2). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 98-17834 Filed 7-6-98; 8:45 am] BILLING CODE 8010-01-M